The Truth About PBMs

What is a PBM?

Pharmacy Benefit Managers, or PBMs, are largely unrecognized by most employees and even many employers, but they have a tremendous impact on U.S. health care decision-making.

For example, the top three PBMs control 77% of the market. CVS Caremark, the PBM for CVS, is the second largest PBM in the U.S., accounting for nearly 34% of covered lives. This significant market share allows CVS Caremark (as well as the other largest PBMs) to exercise undue market leverage and generate outsized profits for themselves.

PBMs determine which pharmacies will be included in a prescription drug plan's network and how much said pharmacies will be paid for their services. Some entice plan sponsors to require plan beneficiaries to use a mail order pharmacy – often one owned and operated by the PBM – for certain medications. They also determine which medications will be covered by the plan or plan formulary, and drug manufacturers often pay “rebates” to PBMs to get their drugs onto those formularies. While their role goes largely unnoticed, the nontransparent nature of the traditional PBM business model can add hidden costs and lead to higher prices.

What are DIR Fees?

Under the current system, pharmacy benefit managers (PBMs) – the middlemen hired by plan sponsors to administer prescription drug benefits – often claw back fees from pharmacies well after a transaction. Those fees, called direct and indirect remuneration (DIR), are often unpredictable and seemingly unconnected to a pharmacy's performance. The fees also disadvantage patients, who are assessed a higher cost-share against their Part D deductible rather than the retroactive, lower adjusted price. The result is to push patients more quickly into the so-called Part D donut hole, at which point the patient is responsible for a considerably larger portion of the costs of their prescription drugs.

In the News & Information Resources

PBM Reform in other states